Tuesday, August 15, 2017

Can Democrats afford to stand pat on the ACA?

A while back, I anticipated that Republicans would demand a steep price for passing legislation that would guarantee federal funding for the ACA marketplace's Cost Sharing Reduction (CSR) subsidies and possibly for a reinsurance program. I asked what Democrats should be willing to give up to secure those obviously necessary measures -- the first simply an end to sabotage, the second an individual market essential that Republicans bestowed liberally in their ACA replacement plans.

David Anderson counters that "this model of leverage is wrong" and that Democrats should be willing to give up...nothing.  The rationale is not "if you break it you own it" (i.e., Republicans will be blamed for market collapse),  but rather that forcing insurers to fund (and price for) the CSR subsidies as of 2018 would hand Democrats "an incredible policy victory."

The logic behind that hypothesis (which I summarized here) is by now no secret. It's based on a paradoxical effect that was gamed out in January 2016 by Urban Institute scholars Linda Blumberg and Matt Buttguens -- and today was reiterated by the Congressional Budget Office. Insurers have already more or less priced in the cost of CSR in their initial rate filings for 2018.  If most states allow them to concentrate the price increases on silver plans offered within the ACA marketplace, those plans will be priced for an actuarial value of 90% -- the average AV for CSR-enhanced silver for enrollees with incomes up to 200% of the Federal Poverty Level (FPL). That will dramatically raise subsidies, which are designed so that subsidy-eligible enrollees pay a fixed percentage of income for benchmark silver. The inflated subsidy will enable enrollees in the 200-400% FPL range -- eligible for premium subsidies but for little to no CSR -- to buy gold plans (at AV 80%)  for less than they'd pay for silver, and in many cases to obtain bronze plans (AV 60%) for free.

Effectively, the change would create back-door CSR for the 200-400% FPL income range, rendering AV 80% plans affordable. It would also enable enrollees with incomes under 200% FPL to buy gold plans for less than silver, at a price difference roughly proportionate to the difference in AV.  As for the subsidy-ineligible, silver plans offered off-marketplace should be priced to reflect the CSR-free silver AV of 70%.  For the unsubsidized, the change is theoretically a wash.

Hence the "policy victory." ACA subsidies are too skimpy for those who earn enough for premium subsidies but too much to qualify for strong CSR (AV 94% or 87%). They would get much better coverage under the switch -- AV 80% for less than they now pay for AV 70%.  CBO forecasts all this, as Urban did 20 months ago. CBO also forecasts that the change would increase the number of insured by about a million by 2020 and maintain that gain through 2026.

So what's not to like? Why shouldn't Democrats say "do what you will?" There are a few reasons, both substantive and political:

1. Cost. CBO projects premium increases of 20% right off the bat in 2018 and 25% by 2020.  Higher premiums mean more people qualify for subsidies, and those subsidies are bigger. CBO projects a 10-year cost of $194 billion -- to increase coverage by 1 million. In 2026, that 1-million coverage boost would cost a cool $37 billion.  CBO's 2016 projection for spending on marketplace subsidies in 2026 is $106 billion. Imagine the effects of increasing that spending by 36% in more rational ways. Compare, for example, the comprehensive set of subsidy sweeteners proposed by Urban's Blumberg and John Holahan in 2015 -- which included raising the AV of benchmark plans to 80%, reducing the percentage of income paid at every level and capping premiums for all buyers at 8.5% of income.  The authors estimated the ten-year price tag at $221 billion over ten years.

2.  Uncertainty.  CBO projects that the extra premium insurers obtain by pricing in uncertainty -- over and above a straight calculation of cost for providing AV 90% silver -- will be relatively modest. Insurer exits would be severe in the first year, leaving 5% of the population without a marketplace insurer - but temporary.* But a world in which Congress fails to pass legislation to shore up the sabotage-battered individual market is also a world of unmitigated total partisan warfare. In that world, Republicans may pass legislation to block enforcement of the individual mandate, further jacking up prices, and HHS continues total regulatory sabotage, choking off various channels of consumer outreach. The risk pool worsens, the markets sicken. HHS will probably continue hostile or ambivalent at best in any case -- but if Republicans pass legislation I would think that would bestow some ownership and somewhat mitigate administration hostility.

3. Diversion.  Whether or not bipartisan legislation passes, the longer and more credibly Democrats engage, the harder it should be for Republicans to build momentum for a fresh drive at partial repeal of the ACA and evisceration of Medicaid. If members of both parties in both houses are introducing and talking up various compromise packages, the many Republicans who privately fear the consequences of horrific healthcare cuts will have further ground for resisting repeal drives. The imperative to engage grows if Senator Joe Manchin (D-WV) takes the Trump bait and accepts a post as Energy Secretary, reducing the Democratic Senate minority to 47.

So what might Democrats ultimately give up to get CSR funding and reinsurance? A week-plus ago I suggested they might have to agree to a (weaker) substitute for the individual mandate. David's post -- coupled with the CBO report laying out both the waste and the windfall resulting from CSR cutoff -- makes me think I went too far (all on the dubious assumption that Republicans can negotiate in good faith at all). Maybe the Problem Solvers' giveaways -- all but ending the employer mandate, repealing the medical device tax, and clarifying/easing the path for states to create multistate insurance plans -- would suffice as a price tag.

*These projections all assume that federal payment of the subsidies continues through 2017. A sudden Trump cutoff would doubtless trigger more violent market chaos.

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